Vivendi Merges Blizzard With Activision (ATVI)

In a horribly complex transaction, Vivendi will merge its games unit with Activision (ATVI), buy some Activision shares, and ultimately control 68% of the combined company, which will continue to be publicly traded.

Strategically, the deal makes sense:

  • Activision gets an online strategy (via Blizzard’s World of Warcraft) and greater scale, and Blizzard gets a more focused and larger games partner.
  • Vivendi’s games unit gets a stronger management team.
  • Electronic Arts, the gaming elephant, gets a much stronger competitor.

Both sides also appear to have made out well on the deal: Vivendi gets to own 68% of an entity to which it will contribute $2.4 billion and a company it couldn’t sell for $700 million four years ago. Activision gets a 25% premium over its recent trading price (for 50% of its shares), but still ends up owning a significant position in the combined company…

There’s presumably a catch here, but if so, it has eluded most participants in the initial round of insta-punditry. Media-conglomerate ownership of games companies has failed miserably in the past, but the last decade’s serialization of game releases has smoothed the industry’s “hit driven” cyclicality.  The publicly-traded aspect of this deal should also mitigate the risk that Vivendi will smother Activision. Bobby Kotick (Activision’s CEO) and others could take the cash-out as an opportunity to, well, cash out, but we think Kotick at least will enjoy having a run at EA.

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